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vkTHE.com/id446425943 STATE OF

GLOBAL ECONOMY

Predictably unpredictable

01.

Geopolitical turmoil, economic uncertainty and unpredictability are the new normal. Fashion companies and executives

must continue to be vigilant and nimble in order to adapt to an ever-changing environment but they

will increasingly focus on directing their energies towards what is within their control.

What words would you use to describe your feeling of the fashion industry?

% of total respondents who mentioned this word

Uncertain 53%Challenging 32%Optimistic 21%

2017

Globalisation

Asian

 

reboot

 

 

 

 

trailblazers

02.

 

 

 

03.

Despite the rise

 

 

With two thirds of the

of nationalism,

 

 

world’s e-commerce

isolationist rhetoric

unicorns, more than

and reshoring,

 

 

half of global online

globalisation will not

retail sales, and

stall. A new phase

countless digital and

of globalisation

 

 

tech innovations,

characterised by

 

 

Asia is no longer

the exponential

 

 

waiting for Western

growth of cross-

 

 

companies to step up.

border bandwidth,

Asian players will as-

connectivity and

 

 

sert their power and

digital data flows

leadership even more

will alter the global

through pioneering

playing field and

 

 

innovations and glob-

give certain players

al-scale investment

a competitive edge.

and expansion.

 

 

 

 

 

 

 

Number of unicorns in

 

 

 

 

 

 

 

e-commerce and

 

 

 

 

 

 

 

valuation in USD

 

Development of

 

 

27.4b

 

cross-border

 

 

 

 

 

bandwidth in

 

 

 

 

thousands of

 

 

 

 

 

 

gigabytes

 

 

 

 

 

 

per second

 

 

 

 

 

 

 

 

 

345-355

China

27

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20.3b

 

 

150-160

 

 

India

4

 

 

 

 

 

 

 

10.1b

 

 

 

 

 

 

 

 

 

 

65-75

 

 

 

 

 

 

 

1-2

 

 

 

 

 

 

USA

5

 

 

 

 

 

 

 

 

 

 

 

 

 

2005

2015

 

2018

 

2021

 

 

 

 

 

 

Uncertain as

31% annual growth

60% of global

Nr. 1 word in 2016

in cross-border

e-commerce

and 2017 –

bandwidth

unicorns

but optimistic as

2015-2018

from China

Nr. 3 in 2017

 

 

CONSUMER SHIFTS

Getting personal

04.

Personalisation and curation will become more important to the customer.

As consumer values coalesce around authenticity and individuality, brands will value data even more to tailor recommendations, engage influencers and personalise experiences. The fashion companies that flourish will re-focus on their strengths.

Platforms first

05.

Consumers will increasingly look to online platforms as the first point of search, attracted by their convenience, relevance and breadth of offering. Whether mass, specialist or premium, platforms will continue to grow in scale and reach compelling fashion brands to find ways of engaging more with these powerful sales channels. The question for fashion brands is no longer “if” but “how” to collaborate with big online platforms.

Demand for

Estimated revenue growth

personalisation

of online platforms,

 

of the shopping

in % and x times

 

experience

 

 

 

 

 

 

 

2.8x

41%

2x

 

 

 

+63%

 

+181%

 

 

 

 

 

2015

2018

2015

2018

 

Amazon

Tmall (GMV)

Personalisation

2-3x more revenue

as No. 1 trend

on global online

for 2018

platforms in

 

 

2018 vs. 2015

 

26

The State of Fashion 2018

FASHION 2018

Mobile obsessed

06.

As consumers’ obsession with mobile grows, the end-to- end transaction will also move to mobile. With an overabundance of mobile payment solutions already available globally, consumers will expect fashion companies to cater for increasingly convenient mobile transactions.

Global mobile payment transaction value,

times increase 2015-2018

 

 

 

 

19x

 

14x 12x

 

 

 

 

9x

 

 

 

8x

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asia Europe North

Lat MEA

 

 

Am

Am

8-20x more global mobile payment transaction value in 2018 vs. 2015

THE FASHION SYSTEM

AI

gets real

07.

Leading innovators will reveal the possibilities of artificial intelligence across all parts of the fashion value chain, exploring new ways of creating value for those employed in the fashion industry. AI enhancements will go beyond the traditional areas of machine tasks into creative and customer interaction processes, blurring the line between technology and creativity.

Online fashion retailer investment in AI >in the next 2 years

75

percent

Sustainability credibility

08.

Sustainability will evolve from being a menu of market-

ing-focused CSR initiatives to an integral part of the planning system where circular economy princi-

ples are embedded throughout the value chain. More fashion brands will plan for recyclability from the fibre stage of the supply chain and many will harness

sustainability through tech innovation in order to unlock efficiency, transparency, mission orientation and genuine ethical upgrades.

Fashion brands disclosing supplier information, in % out of 100 large fashion brands, 2017

42%

Off-price deception

09.

Off-price sector growth continues to be driven by the notion that it provides a solution to challenges like excess stock and slow growth, but the US market serves as a warning about saturation and possible sales cannibalisation. As Europe and Asia get hooked on the myth of an off-price ‘panacea’, the fashion industry could be put at risk of margin erosion unless companies carefully consider their off-price channel strategies.

Off-price growth from 2015-2018

74%

32%

18%

 

 

 

 

 

 

 

 

 

US

EU

China

(off-price (off-price

(outlet

chains)

chains)

malls)

>75% of fashion

42 out of 100

Off-price

retailers plan to

fashion brands

growth of

invest in AI in

disclose supplier

18% in the US;

2018/2019

information

32% in EU;

 

 

74% in China

Startup thinking

10.

Due to an urgent and intense need for innovation across the industry, a growing number of fashion

companies will aim to emulate the qualities of startups such as agility, collaboration and openness. Traditional and heritage players

will continue to be compelled to open their minds up to new types of talent, new ways of working, new kinds of partnerships and new investment models.

Most important barrier to meeting digital priorities, in % of 2,135 respondents of McKinsey Digital survey 2016

Culture and behavioral changes

Lack of understanding of digital trends

Lack of talent for digital

Culture and behavioral changes as most important barrier to digital

27

vkGLOBAL.com/id446425943 ECONOMY

01. Predictably unpredictable

Geopolitical turmoil, economic uncertainty and unpredictability are the new normal. Fashion companies and executives must continue to be vigilant and nimble in

order to adapt to an ever-changing environment but they will increasingly focus on directing their energies towards what is within their control.

The story of the last decade is one of immense

closures were already more than three times the

economic and political uncertainty. Significant

number of closures in all of 2016.4 On top of that,

world events grow in frequency, from terrorist

more than 20 percent of malls are expected to

attacks to geopolitical turmoil, such as Qatar’s

close by 2020.5 Given the unpredictable nature of

stressed diplomatic relations with its neigh-

future economic development, many US fashion

bours and the growing nuclear threat caused by

companies will likely have some difficult strategic

tensions between North Korea and the United

decisions to make in 2018.

States. In addition, the number of natural

This unpredictability goes far beyond the

disasters worldwide is on the rise. Like terrorist

US. Across Europe, economies are recovering,

attacks, natural disasters are not only devastating

however concerns over future crises and uncer-

for the people they directly affect but have major

tainties are driving companies to increase their

consequences for local communities, companies,

cash reserves.6 The potential challenges and

and infrastructure. It is not surprising that

impacts of Brexit and the Catalonian independ-

fashion executives continue to use “uncertainty”

ence movement are still unclear. The continued

and “challenging” to describe the industry today.

strength of the global equity markets could pose

While the macroeconomic situation in

a threat to economic stability, given that it is not

the United States has improved considerably

fully supported by strong fundamentals.7 As the

in recent years, it is unclear whether sweeping

risk of asset bubbles heightens, so does the risk of

policy reforms will be implemented, and what

another global financial crisis. What’s more, the

consequences they might have. Moody expect

global geopolitical mood seems to be increasingly

the US economy to pick up momentum, while the

tense.

IMF has downgraded its forecast – citing uncer-

Asia is not insulated from the uncertainty

tainty about the timing and nature of US fiscal

either. Indeed, the Thomson Reuters/INSEAD

policy changes as a major factor. Compounding

Asian Business Sentiment Index showed that

the issue are the dollar devaluation against

despite improving economic performance in

several major currencies, the potential US with-

most of the region, business confidence among

drawal from major trade agreements and the

Asian companies fell at the end of 2017. This was

move to reduce the amount of manufacturing

attributed to escalating geopolitical tensions

that is offshored.

in the region, everywhere from the Korean

Meanwhile, the US fashion market is facing

peninsula and Japan to Myanmar.8

ongoing challenges as an overdue market correc-

The frequency of catastrophic events is

tion continues: by mid-2017, announced store

shaping a new mindset among business leaders,

28

 

who have now come to expect the unexpected. Fashion executives are no exception. “We’re living in times that are incredibly unpredictable,” says Laurent Potdevin, the CEO of Lululemon. “And I don't think it's going to change, I think it's going to continue to be unpredictable”.

This mindset change may explain the newfound optimism amongst some of this year’s respondents to the BoF-McKinsey Global Fashion Survey. “Optimistic” was the third most cited sentiment respondents used to describe their view of the state of the fashion industry. While domestic political conflicts, policy reforms, and geopolitical instability are identified as common risks to growth, as in last year’s survey, fashion businesses globally around the world report that conditions are improving.

In 2018, fashion executives will need to accept the fact that change and instability are fixed features of the current business climate, and to focus their efforts on those aspects of the business that they can control. “You can't control everything,” saysLeviStrauss’s ChipBergh in an interview for theStateof Fashion 2018.“But we cancontrol whatour actions are. We can control whatwe're going to do. We can controlwhere and how we deployourresources, what areas of our strategy we're going to focus on.”

The State of Fashion 2018

Successful companies will need to become agile in the technical sense: working fast and iteratively, always keeping customer needs at the forefront. Truly agile organisations are paradoxically both more stable and dynamic, as the combination of employee empowerment, short development sprints and bringing solutions rapidly to customers can help a company become more nimble.9 “There’s so much that is happening all the time that you need to be quite reactive, quite nimble, quite flexible,” says Victor Luis of Coach

– adding that companies need not to lose “sight of the fact that you can’t make a lot of short-term decisions that impact the long-term health of a brand.”

Outside the boundaries of an individual company, agility will also require fashion companies to continue to build flexible supply chains and delivery models that can respond quickly when the environment changes. It also means strengthening risk management. When making investments in 2018, fashion executives need to respond to sudden disruptions, but should be wary of making decisions based solely on the anticipated short-term effects of such disruptions and losing sight of their long-term aspirations.

29

vk.com/id446425943CEO TALK

CHIP BERGH

PRESIDENT & CHIEF EXECUTIVE OFFICER OF LEVI STRAUSS & CO.

The CEO of the iconic American denim and apparel brand speaks to BoF about managing through a time of unprecedented change and navigating the ongoing challenges in the US wholesale sector, while seizing the opportunities presented by new technologies.

by Imran Amed

BoF: What were the defining themes of 2017?

Chip Bergh: The industry is seeing massive amounts of disruption from multiple sides. There is channel disruption with the evolution of these large, powerful pure play e-commerce players, whether that's Amazon in the United States, Zalando in Europe or Tmall in China. With the transparency that now exists online and the ability to shop by price, the consumer is obviously more informed today, has access to more information more quickly than ever before and has much higher expectations and standards than they did even five or six years ago. And finally there is speed and agility: every company is trying to figure out how to do things smarter, faster, quicker to market, so that they can respond to changing consumer signals in a really timely way, without needing to eat a lot of excess inventory.

BoF:What about China?

CB: In China, everything is on steroids. China is embodying all of these trends on a magnified basis because it was coming from behind — now it seems to be almost out in front. Tmall and Alibaba have grown massively. Five or six years ago, most of the e-commerce that was done in China was cash on delivery. It was delivered by a person, they'd come, they'd let you try product on, you would keep what you wanted and pay them. There was no real financial transparency. Credit cards weren't used broadly by consumers in China. AliPay, WeChat Pay — none of that existed. Now consumers don't even carry a wallet in China. Everything's electronic and the speed with which it has happened

— WeChat with 600 million users in China alone — is just immense.

30

BoF: Have the big online e-commerce platforms that you mention become too big and important for a brand like Levi’s to ignore?

CB: We've been selling directly to Amazon for a while now; they're a major customer. Amazon in the US is our fastest growing customer — they're a top 10 customer globally. Outside of the US, Tmall and Zalando are big, [also] Flipkart. I think brands really have to consider what their strategy is with each of these big customers first and foremost. Do they want to play or not? You can't disregard the fact that most of these platforms run a thirdparty marketplace, so, whether you like it or not, they're probably going to have a third-party marketplace for your brand; your brand's likely going to be on that site anyway.

I want to have as much control of the brand as possible on these platforms; it's better for us than a third-party marketplace. So for the most part, we are playing with all these major online platforms and we have a pretty healthy business with most of them.

BoF: What will be the biggest challenge of working with companies like Amazon?

CB: The big challenge now is that Amazon is introducing their own private-label apparel business and they're going to be massive in apparel over time. They're already very big, almost $20 billion of apparel. They don't have a private-label jeans brand but they're collecting a lot of data on today’s consumer and I think their real power, over time, is going to be the data they're able to collect on their consumer. It's just a question of time. You've got to love them, work with

them and partner with them; recognise and respect the size and the scale of the business that they have; and recognise that they could become competitors.

BoF: There are also ongoing challenges in the US wholesale business.

CB: Yes, in our largest market, in our largest channel, some of our largest customers are struggling right now. This is part of the disruption that I was talking about. The US is still one-half of our business; about 70 percent of the US business is wholesale

— you can do the maths. About a third of the company's overall results reside in this one channel and it largely comes down to a couple of very key customers.

I think it's going to shake out. It may take another year or two, and we're not accepting that our business is just going to decline in wholesale. There are other wholesale players that are performing reasonably well, including smaller chains. To some extent it's about the distribution, the number of doors that you're in and the strength of your business in those doors. As we face inevitable door closures with some of those big customers, we're looking at: where do we have opportunities to add new doors? Not necessarily our own retail business, but other wholesale customers that represent an opportunity for us.

BoF: To add to that, it's clear that the economic and political situation in the US remains ambiguous, with uncertainty around fiscal policy, trade policy, the dollar and issues with immigration. What is the impact?

CB: There are some pretty gloomy scenarios out there, whether it's border adjusted tax [or] NAFTA falling apart. Any one of these things could have a major impact on the apparel industry here in the US. I made a trip to DC two or three months ago to meet with some of the administration as well as some congressmen and senators about the border adjusted tax. For Levi Strauss & Company, if the border adjusted tax was put into place, this company would make no money, even our profitability would go negative. That's how big of an impact it would have on us. Almost 99 percent of the apparel industry is imported; the way the tax was going to work is we would've had to pay taxes on the full value of the goods that were being imported.

What's going to happen with NAFTA? Nobody really knows. We're in the midst

now of trying to negotiate, but every now and then you hear, “Well we're just going to walk away from it.” The hardest thing is the unpredictability of what's going to happen in Washington.

BoF: What's your strategy for managing through this period of uncertainty?

CB: We've been around for [almost] 164 years. We've seen 30-plus presidents and administrations come and go and we've been through it all. We've been through world wars, we've been through the Great Depression. I'm a big believer on focusing on the things that you can control. It is difficult to predict where we are heading in the current political environment in the US. We can try to influence it, but we can't control it. We can [only] control what our actions are. We can control where and how we're going to allocate the critical resources — whether it's money or people or whatever — to deliver the growth that we expect from ourselves and have committed to our shareholders.

BoF: What do you think are the themes to watch out for in 2018?

CB: One is the role of big data and artificial intelligence, and how brands and companies really begin to leverage that to do a better job of connecting with consumers and even formulating what their products and assortments look like. The second big thing is this whole fourth industrial revolution [and] the impact of digital, whether it's 3D printing or graphic printing. Over time these things are going to have an impact on the industry and how brands tap into the digital world. The digitalisation of manufacturing is going to become more of a factor in this industry over the next couple of years.

The last thing is I do think a shakeout is coming. There are going to be winners and losers. There are going to be brands that aren't going to make it. You can probably run down the list almost as easily as I can. There are a lot of brands [weighed down by debt] that are highly dependent on customers that aren't doing very well. I think [only the] strong brands are going to survive and that's why I keep coming back to the strength of the Levi's brand as one of the biggest assets we have. I'm really focused on how do we make it even stronger.

This interview has been edited and condensed.

The State of Fashion 2018

“It is difficult to predict where we are heading in the current political environment in the US. We can try to influence

it — but we can't control it.

We can [only] control what our actions are. We can control where and how we're going to allocate the

critical resources

— whether it's money or people or whatever — to deliver the growth that we expect from

ourselves and have committed to our shareholders.”

31

vk.com/id446425943

02. Globalisation reboot

Despite the rise of nationalism, isolationist rhetoric and reshoring, globalisation will not stall. A new phase of globalisation characterised by the exponential growth of cross-border bandwidth, connectivity and digital data flows will alter the global playing field and give certain players a competitive edge.

In this new world, globalisation can seem like a dirty word. Across the globe we are seeing increasingly nationalistic rhetoric in public debate, leading to the protectionist stance taken by many countries with initiatives such as “Made in America” and “Made in China 2025”. One practical consequence is a shift in global trade alliances, which are altering trade dynamics. For example, the US withdrawal from the Trans-Pa- cific Partnership (TPP) is likely to impact both imports and exports of fashion products in the US (with widespread consequences given that the US is currently the largest importer of apparel globally).10 The ramifications of this move, combined with rising labour costs in many traditional manufacturing hubs and technology improvements, could make re-shoring more commercially viable for fashion companies in the US, as identified in McKinsey’s recent Apparel CPO Survey report. In the same report, more than one-third of surveyed chief purchasing officers said they expect their companies to make increased use of re-shoring. At the same time, consumption has shifted towards the manufacturing centres of the world, local brands and retailers in China and India are growing, and with that the local-for-local production base as well as regional trade networks.

But reports of declining globalisation are much exaggerated. Even with the apparent increase in isolationist behaviour in some countries, globalisation is not stalling. On the contrary, we are entering a new phase of globalisation, driven by digital connectivity and the flow of data, and this will lead to much greater global connectedness, not less. Cross-border bandwidth has risen approximately 80 times since 2005, and over the course of a decade, data flows have raised world GDP by more than 10 percent. Data flows now account for a larger share of the impact on GDP than the global trade in goods. This

32

trend is expected to continue, with cross-border bandwidth projected to grow by another five times in the next four years. New forms of connectivity will emerge. For example, 40 percent of global devices and connections in 2019 will be machine- to-machine, according to a Cisco estimate.

A significant portion of this global flow of data is intracompany traffic. This includes making transactions, tracking information, and communicating internally and with suppliers and service providers. For many years, large, established companies enjoyed cost savings from building their own systems to deal with these crossborder interactions, which were costly for smaller companies. But the recent exponential rise in connectivity has brought an array of new ways to interact across borders that are inexpensive and open to all kinds of businesses, from operating systems to marketplaces and social networks. Individuals, too, are playing an important role in this new digital globalisation. More than 900 million people have international connections on social media, and consumers are estimated to spend $1 trillion on cross-border e-commerce by 2020. The largest online ecosystems, such as Facebook, Youtube, WeChat and Whatsapp, have built user bases the size of country populations: between 2013 and 2015 the number of SMEs on Facebook reached about 60 million.11 The emergence of these ecosystems has not only improved the transparency and efficiency of global markets but has also democratised global connectivity by reducing the costs of international communication and transactions.

This growing global connectedness is driving up competitive intensity in the fashion industry. The advantage that established companies enjoyed as a result of their assets – from physical distribution infrastructure to proprietary systems for cross-border communication – is likely to diminish. In 2018, more fashion companies will

The State of Fashion 2018

$1trillion

is estimated to be spent by global consumers on cross-border e-commerce by 2020

take advantage of opportunities to enter new markets, as connectivity allows for access to customers worldwide through own or third-party platforms. Companies enter new markets without establishing a significant physical presence. The ramifications of global connectivity are especially important for younger fashion players, who now have the potential of reaching global scale and becoming “micro-multinationals”: in a recent McKinsey Global Institute survey, 86 percent of startups state they are engaged in at least one cross-border activity. One noteworthy example is Matchesfashion.com, which started as a small chain of local neighbourhood boutiques in London and has since expanded to 190 countries through online channels. Manufacturing companies from Asia develop brands and reach global consumers directly. No longer sheltered by traditional advantages, established fashion players should expect increasing competition from all corners of the world, and from a broader array of companies as startups go head-to-head

with incumbents – all of whom are enabled by virtual connections.

Established companies that operate across markets stand to benefit from growing connectivity as well. They can simplify existing global operations and internal communications through virtual connectivity and improved systems for accessing information in real-time. Incumbents can take advantage of digital ecosystems in the same way as smaller companies, gaining access to customers worldwide – especially those in new segments or in fast-growth markets. New digital collaboration models between fashion companies and their foreign suppliers and service providers can improve transparency and efficiency. Transparency, traceability and trust throughout the value chain can be further enabled by blockchain technology. Companies will be able to tap into global ideas, trends, and talent pools faster and more efficiently, from crowdsourcing innovation ideas online, to virtually connecting with creative or other talent from the other side of the globe.

33

vkNext.com/id446425943year non-Western markets will account for a greater share of global

apparel and footwear sales than Europe and North America. But how will the increasingly important regions of Asia, the Middle East, Latin America and Africa leverage their newfound status to gain even greater impact

and influence on the global fashion industry?

The State of Fashion 2018

IN DEPTH: GLOBALISATION REBOOT

FASHION’S NEW CENTRE OF GRAVITY

by Robb Young

LONDON, United Kingdom — Hindsight really is a wonderful thing. When future historians look back on 2017, they will see several potent symbols of the new world order hiding in plain sight. Obscured by some of the more dramatic events of the year, one discreet milestone that many mistook for a novelty was actually far more telling than it seemed. In October, for the first time since records began, it was revealed that a country in Asia now had the most powerful passport in the world.

According the Passport Index, a tool developed by residence advisory firm Arton Capital, this year saw Singapore depose Germany in its global ranking. Until then, the best passport to have — based on the number of countries granting visa-free entry or visa on arrival — was from a European or North American nation.

Barrier-free entry matters not only because mobility is an extremely valuable currency in today’s globalised business environment but also because it is a measure of a nation’s soft power, which in turn bolsters the standing and bargaining power of local companies, brands and entrepreneurs on the international stage.

For Singaporean startups like ViSenze, an AI-pow- ered visual search engine used by the likes of Uniqlo and e-commerce platforms such as Myntra in India and Rakuten in Japan, having executives with a powerful passport represents a subtle but meaningful competitive advantage — especially when the company grew its international footprint by opening new offices in San Francisco, London, New Delhi and Beijing.

Singapore’s recent “passport coup”’ is just one of many signs that point toward the probability that the 21st century will indeed be “Asia’s century” and, more broadly, that the West’s grip on power is gradually waning. But at a time when the world’s axis is tilting east and south in a new and sometimes uncertain era of globalisation, not all industries are adapting fast enough to these monumental shifts.

New power brokers herald end of an era

Although its supply chains and retail networks have perhaps never been more globally expansive, the fashion industry remains disproportionately skewed toward Europe and the US. Even in recent years, the fashion industry has been guilty of seeing the world through a rather patronising prism of “the West and the Rest.” For far too long, some insiders claim, the regions of “the rest”

— the huge expanse that includes Asia, the Middle East, Latin America and Africa — were treated as an after-

thought. But now, in some ways though not all, the balance of power is shifting in their favour.

“It’s crazy but it really wasn’t that long ago that the corporate fashion world reduced the whole planet down to three territories. I remember the days when you’d look at a brand’s financial report or some strategy document and see that they were literally only thinking about Europe, America and Japan. Everywhere else was lumped together in a footnote called ‘ROW’ which was basically this miscellaneous ‘rest of the world’ bucket. That kind of says it all, don’t you think?” quips Shaway Yeh, group style editorial director of Modern Media Group in China.

“Now the industry is obsessed with China because they’re so dependent on it… but, you know, old habits die hard. Even though most brands now have a presence in most major countries, the way [fashion leaders] in the West approach the rest of the world needs to change. Apart from China, I don’t think they give most other emerging markets enough attention or acknowledge their contributions or needs or even their market value for that matter,” she adds.

There couldn’t be a better moment than now for fashion industry leaders to reflect on this apparent disparity, as 2018 will be a watershed year for purchasing power. According to the McKinsey FashionScope, the collective share of apparel and footwear sales from Europe and North America will fall from 50.4 percent of the global total in 2017 to 49.9 percent in 2018. Meanwhile, the collective share from Asia, Latin America, the Middle East and Africa will rise just above fifty percent and is forecast to continue to increase in the years to come.

“Well, let’s see if this sinks in at the next Paris Fashion Week. Just check out their seating plans and see how many [seats] big brands allocate for American and European guests compared to how many for the rest of the world [and] see if it matches the proportion of revenue the brand gets from each region. I bet it’s still way off,” suggests Yeh, who recently founded a sustainable innovation consultancy Yehyehyeh that partners with global fashion brands for projects in Asia.

“I mean, I get that having the big four fashion capitals and Hollywood and a century of designer fashion heritage will probably always mean that the West has a bigger role in fashion, but that should only go so far.”

This legacy has certainly had a lasting impact at the luxury end of the spectrum. It helped some of the more prolific B2B players to root themselves ever deeper into Western markets and it allowed retailers there much

35

vk.com/id446425943

longer to develop, leading to greater market maturity. In the case of Italian showroom L.A. Distribuzione, it means that Europe remains one of its strongest global market regions despite serving a very diverse international retail clientele.

“Back in the ‘90s, Japan was a big player in luxury fashion [but other] Eastern countries were a novelty and Asia was only about a few names like Joyce [boutique in Hong Kong]. The early 2000s were the first picture of the situation we’re witnessing today, where we can see big growth in Asia [and other regions],” says L.A. Distribuzione co-CEO Leonardo Cappannelli. Today, the showroom represents Loewe and Outerknown among others, but in the early years it wholesaled brands like Alexander McQueen and Balenciaga around the world.

Another veteran who has witnessed the meteoric rise of emerging market retail is Maria Lemos, director of Rainbowwave, a wholesale showroom she founded fifteen years ago in London after leading sales teams at Sonia Rykiel and John Galliano in Paris. For Lemos, it is not only a matter of growing sales volume but growing influence in terms of the number of innovative retail concepts and business models coming out of emerging markets.

“There was the Korean wave with Boon the Shop, Space Mue and Rare Market, then waves from Turkey and other countries, but that was just the beginning. Look at

The skyline of Chengdu, China featuring West Pearl Tower

stores like Homme et Femme in the Philippines, which is this incredibly curated boutique in Manila extremely ahead of the curve in a market you wouldn’t necessarily have known to be so advanced,” Lemos says.

Farfetch has been partnering with a growing number of retailers in non-Western markets. The online marketplace now serves customers in 10 languages, shipping designer fashion from over 700 partners to 190 countries worldwide. In recent years, as buyers from its non-Euro- pean store network became increasingly adventurous and avant-garde, an interesting phenomenon started taking place.

Some European customers using Farfetch have come to rely on its far-flung store partners to buy European designs that are not readily found back in Europe. Instead, they shop online, for example, from a unique selection of Raf Simons from Saudi menswear boutique Le Gray in Riyadh or Simone Rocha via Lebanese boutique Piaff in Beirut, and buy hard-to-find pieces from the likes of J.W. Anderson at South African retailer Maison Mara in Cape Town.

“I think Europe will continue to dominate the creative and craftsmanship sides of the industry, simply because they are impossible to replicate and this [European cluster] is at the heart of the industry. In terms of demand, however, this will definitely be the decade

where emerging markets will take the lion’s share of growth,” says Farfetch founder and CEO José Neves.

Asia’s purchasing power needs soft power

“For more than 1,800 of the last 2,000 years, China and India were always the two largest economies in the world,” Kishore Mahbubani told Asia One in 2016. The former diplomat and dean of the Lee Kuan Yew School of Public Policy in Singapore is a great proponent of this being an Asian-led century. “The past 200 years have been a major historical aberration [so] it’s perfectly natural for China [and] India to resume their places… all aberrations come to a natural end.”

The Asia-Pacific region currently accounts for around 38 percent of the world’s apparel and footwear sales, the largest share of any region. Europe is now in second place at around 27 percent. However, global influence is not gained solely by scale or purchasing power. What has been helping to push Asia closer to the fashion industry’s centre of gravity is a combination of supply chain leadership, tech innovation and Asian-led international investments. This is how the region will continue to gain a louder voice.

“In technology, Chinese firms are actually ahead of Western firms in areas such as e-commerce and social media,” says Neves, citing the country’s ubiquitous WeChat platform which has often left fashion

Sino Images/Getty Images

marketers scrambling to keep up with its breakneck pace of development. Interestingly, it was WeChat’s parent company Tencent that swooped in to the rescue of Snapchat when it amassed a reported $2 billion stake in Snap in November 2017.

Asia’s clout only grows when one of its pioneering firms makes a bold move on international peers. Whether it is Alibaba Group’s recent appointment of a US-based quantum computing scientist to drive exponentially faster machine learning for its e-commerce platforms or the push by Chinese manufacturers like Suzhou Tianyuan Garments, — a supplier for Armani and Adidas — to open a T-shirt factory using advanced robotics in America’s Deep South, the innovation tide is turning eastward.

“Whoever owns the supply chain will eventually be the winner, since there are not many countries left for chasing the cheap needle,” says Gerhard Flatz, managing director of Chinese manufacturer KTC, whose Guangdong factory produces for specialist athletic and performance sportswear brands including Rapha and Mammut.

This sentiment was especially evident in October when supply chain management company Fung Group welcomed a host of venture capitalists and tech entrepreneurs to the launch of its new Explorium incubator lab. With hopes that the lab will help further accelerate the rapid prototyping of omnichannel concepts across fashion retail, the Hong Kong-based giant chose Shanghai for the lab’s location because the city is at the forefront of “new retail” in China, which in turn means it sets digital retail trends across the world.

“We’re connecting innovators who want to create digital supply chains of the future with logistics and retail innovators who want to be the best at serving the digital- ly-enabled consumer of today and tomorrow,” said Fung Group chairman Dr. Victor K. Fung. Seen in the broader context of China’s colossal One Belt One Road infrastructure project, the impact of this on future trade dynamics for global fashion players could be huge.

East Asian nations like Japan and South Korea now spend more on R&D as a percentage of GDP than many of their Western European counterparts and a culture of entrepreneurship is taking hold across much of the region.

According to the World Intellectual Property Organization, China became the first country to file one million patent applications in a year in 2015. Stringent IP protection and enforcement is a pillar of Singapore’s successful startup scene, contributing to the nation ranking third on the World Economic Forum’s 2017-2018 Global Competitiveness Index. Only the US and Switzerland score higher.

As the global fashion industry becomes more reliant on tech innovation for growth, Asia’s achievements in this realm are a growing advantage. From Japan’s cutting-edge designers using textile nanotechnology to Taiwan’s drive to carve out a niche for itself in eco-friendly high-perfor- mance fibres, the region has many things to celebrate.

But as is evident from Asian brands as diverse as Comme des Garçons and Manish Arora, fashion is as much an applied art as it is a creative industry. Most Asian nations have yet to effectively deploy soft power strategies

The State of Fashion 2018

”For more than 1,800 of the last 2,000 years, China and India were always the two largest economies in the world...the past 200 years have been a major historical aberration.“

to boost their fashion industries as well as their legendary designers naturally do.

“The soft power of my country’s made-by-hand [sector] is underestimated,” concedes Indonesian designer Toton Januar, the 2016 winner of the Woolmark Asia Prize. “The Indonesian government fought for the heritage-craft batik only when the Malaysian government stepped in to patent it.”

Something similar could be said about India’s dizzying array of artisan textiles and ancient techniques — though Prime Minister Modi’s “Make in India” campaign aims to remedy that.

In the same way that India’s vibrant entertainment industry has been underleveraged to promote the country’s fashion sector on the global stage, China has built hundreds of Hanban (or “Confucius Institutes”) to promote Chinese culture around the world yet few of them feature anything like Chengdu street style or the rise of Shanghai Fashion Week. Clearly there are many missed opportunities.

Leveraging Latin America’s cultural capital

Whether it be high culture or pop culture, one way for emerging market fashion players to have greater global impact than pure purchasing power is to leverage their cultural capital.

At the highbrow end of the scale, global fashion brands have been turning to world renowned artists and architects to boost everything from visual merchandising to marketing. A growing number of them have come from Latin America. Giorgio Armani’s collaboration with Colombian artist Marta Luz Gutiérrez for an in-store installation and Louis Vuitton’s ad campaign using a building designed by the late Mexican architect Luis Barragán as a backdrop are just two of many examples.

Beyond the region’s links with Europe and the US, however, there are other opportunities to explore. The rise of south-south trade and cooperation — exchanges between developing nations — is compelling some creative industry leaders to reassess their investment priorities.

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With Latin music now topping the international charts from Dubai to Delhi, for example, the social media channels of young Latin American reggaeton musicians represent an increasingly influential marketing vehicle for local fashion brands hoping to tap into new markets on the other side of the world.

Latin America’s “telenovelas” (soap operas) could represent another opportunity for mass market players. Mexican multimedia giant Televisa is one of the most prolific telenovela content creators in a region where product placement on TV is commonplace. As early as 2015, the company’s international sales rep told Variety that Televisa sells about a dozen telenovelas annually to 37 countries in Sub-Saharan Africa and 24 Middle Eastern and North African territories.

“I wish we, as designers, could influence…fashion as much as the soap opera stars [here] do. Their reach is outstanding,” said Dudu Bertholini, a designer who was a wardrobe consultant for Brazilian telenovela Verdades Secretas in 2015.

The formula certainly works elsewhere. Seoul’s fashion industry famously benefited from the Hallyu wave of Korean soap operas and music exports to other Asian markets. Success, however, depends on execution. While Japan reigns supreme in the 2017 Soft Power 30 global ranking, the government’s “Cool Japan” campaign was criticised by insiders for trivialising Tokyo’s globally influential fashion scene by packaging it with sectors that resonate less well abroad like J-pop music.

Building knowledge economies in the Middle East

Unfortunately, top-down initiatives don’t always suit the fashion industry. But capturing momentum from grassroots design movements and channelling entrepreneurial flair in an organic way is not easy either.

“Projects that are ignited by the government may start based on a perception of top-down. [But] the soul is created [and] enhanced by the people working on it and experiencing it and these initiatives can come to life in magical ways resulting in repeat business,” says Ghizlan Guenez, CEO of The Modist, a Dubai-based e-com- merce site that offers contemporary designer brands like Stella Jean and Maison Rabih Kayrouz to women whose religious, cultural or personal tastes lean to a modest style aesthetic.

Pointing to the framework offered by the Dubai Design District and the Dubai Design and Fashion Council, Guenez clearly feels that she has benefited from the top-down approach often used in the United Arab Emirates. The Algerian-born executive has lived in the UAE for 20 years and says that “there’s more to be done [but] the entrepreneurial engine is in full force within the UAE.”

“What is impressive is the strength and speed of initiatives taking place to enhance [and] develop the influx of talent from all over the world into the Middle East. As entrepreneurialism accelerates in the region, high levels of investment are following opportunities across the fields of art, architecture, technology and education,” she adds.

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The November opening of the Louvre Abu Dhabi is the latest example. But in neighbouring states like Qatar, there are concerns that some of its megaprojects could end up as white elephants. In Saudi Arabia, Crown Prince Mohammad bin Salman recently announced a plan to build a colossal $500 billion mega-city on the Red Sea coast near the border with Jordan and Egypt called Neom, to be loosely modelled on the “free zone” concepts in Dubai.

One area where there is a lot of optimism is education. In a bid to diversify away from hydrocarbons, the Gulf states are investing in ways to become knowledge economies. One of several new higher education institutions in the region KAUST, the King Abdullah University of Science and Technology, is a progressive research university where seminars on wearable tech and grafting smart surfaces onto textiles are becoming commonplace.

With a growing number of Western universities present in the region — such as the Paris-Sorbonne University Abu Dhabi, a Dubai campus of London Business School and Georgetown University in Qatar — the fashion education sector is likely to gain more traction too. Currently the region is served by Shenkar in Israel and branches of Esmod in Dubai, Istanbul, Tunis and Beirut. Now, however, several prominent fashion schools from Europe and the US are said to be exploring an opening in the Gulf in the coming years.

In December 2016, the Istituto Marangoni Group’s then-managing director Roberto Riccio told a press conference that Dubai had been earmarked as its next opening after Mumbai. More fashion schools are needed to meet demand from the Middle East where the global success of Lebanese designers has inspired a new generation to pursue fashion as a career. Interestingly, one of the drivers Riccio cited for a possible Dubai campus was to attract fashion students from Africa — where there is also growing demand — who could find the visa system in Europe onerous.

Africa’s ambition to leapfrog ahead

“The common phrase ‘Africa is the future’ is a reflection of how the continent is growing on its own terms and not necessarily just as ‘new market potential’ for the first world to tap into,” says Kenyan fashion PR executive Diana Opoti.

Opoti’s fashion career arc is a good case in point. After hosting the television show Designing Africa, she created a successful viral campaign called 100 Days of African Fashion that saw her travel the continent and showcase 100 different locally designed outfits on her Instagram account. It was this experimental social marketing venture that eventually led her to launch a multi-brand retail store that will bow in 2018 in Nairobi.

“Technology is one of the most visible ways we’ve ‘leapfrogged ahead’ in Africa,” she says referring to the way many African consumers skipped the landline and went straight to mobile.

“Kenya specifically is known for its innovation in technology [and] topping this is M-Pesa, the ‘SMS mobile wallet’ which became the most convenient way of making payments for millions. [It’s] so popular, in fact, that it’s now

A visitor at an exhibition at the grand opening of the Louvre Abu Dhabi

Museum in the United Arab Emirates

 

challenging global payment systems like Visa who’ve been

and Vietnam and other places. We can use automation and

 

forced to adapt by creating their own [rival] system here,”

leapfrog some of the traditional manufacturing processes

 

Opoti says, referring to the multinational’s new mVisa

into automated processes,” said Yared Alemayehu Simegn,

 

service.

manager of Ethiopian shoe factory Walia Leather who

 

A forerunner of many contemporary mobile payment

produces for several global brands.

 

solutions, the pioneering service was launched in 2007

The great strides made by fashion players in

 

in Kenya and Tanzania on the Safaricom and Vodacom

non-Western markets certainly do not unburden them

 

networks and has since expanded as far as India and

from the many challenges they can face there. If anything,

 

Eastern Europe.

it points to a steely resilience that helps them deal with

 

Some believe another way African consumers could

everything from poor infrastructure and political insta-

 

leapfrog is through cryptocurrency. According to Coin-

bility to trade barriers, bureaucracy and prohibitive tax

 

telegraph fintech expert Olusegun Ogundeji, “decentral-

regimes.

Contributor

ised, open and permissionless Blockchain technology may

Most insiders concede that fashion will probably

well become the foundation for economic empowerment in

always be anchored in cities like New York, Paris, Milan

Nigeria [offering] peer-to-peer trade, new exchanges and

and London but things are evolving fast. Empowered by

 

 

innovative ICOs.” Anything that makes online payments

digital connectivity, upwardly mobile consumers and bold

Images

easier in the region could eventually help African fashion

business innovation, emerging market leaders are now

ecommerce players like Kisua, Jumia and Konga.

helping to find a new centre of gravity for the global fashion

 

Cacace/Getty

On the manufacturing side, countries like Ethiopia

industry. With Seoul, Lagos, Bogotá, Kuwait City and many

happening in the fashion supply chain. Many Chinese

As Guenez puts it, this new era is “about seeing a

 

where investment has poured in from Asia, have been

more centres of influence now firmly fixed to the fashion

 

able to take advantage of the sudden and radical changes

map, power is increasingly shared and decentralised.

Giuseppe

and foreign-built factories in Ethiopia are built with the

diverse, representative and level playing field, [where]

“We can learn a lot from what happened in Brazil

industry rather than a fully Western bias dominating.”

 

Japanese “kaizen” system in mind to keep standards high.

different cultures have influence on the global fashion

 

 

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03. Asian trailblazers

With two thirds of the world’s e-commerce unicorns, more than half of global online retail sales, and countless digital and tech innovations, Asia is no longer waiting for Western companies to step up. Asian players will assert their power and leadership even more through pioneering innovations, global-scale investment and expansion.

The global fashion market’s centre of gravity has long been shifting East. Asian economies have experienced strong economic growth; GDP growth in Asia remains much higher than in Europe and the US. Accompanying this growth is the rise of Asian consumers’ fashion expenditures. Asia-Pacific is already established as one of the most important regions for the global fashion business, and according to the McKinsey FashionScope the region is projected to account for almost 40 percent of global apparel and footwear sales by 2018. The Asian online apparel market alone is projected to reach US $1.4 trillion by 2020.12

But Asia’s influence is growing not only because of its role as a battleground for sales and new consumers. The region is increasingly the source of technology innovations. Asia now boasts two-thirds of the world’s 45 e-commerce unicorns, and China is one of the world’s most active digital investment and startup environments. China’s unique digital ecosystem continues to spawn giants such as news aggregator Toutiao, which like other online leaders such as Baidu, Alibaba, and Tencent, offers advanced solutions and local innovations. The pace of innovation is spurred by China’s uniquely-demanding consumer landscape

Asia now boasts two-thirds of the world’s 45 e-commerce unicorns, and China is one of the world’s most active digital investment and startup environments.

Asia

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where 20 percent of internet users rely on mobile alone to access the internet, compared to just 5 percent in the United States. The phenomenon of digitally-savvy consumers is not limited to China. Ninety-five percent of APAC’s 1.5 billion social media users access social media via mobile devices, the highest rate globally.13

The innovation leadership fostered by this environment reaches far beyond China’s borders. The country’s outbound investments amounted to 14 percent of all global venture capital investments outside China in 2016, and the top Chinese internet companies made almost twice the number of overseas deals as US peers.14 We expect to see Asian companies continue to introduce new technology and business model innovations to the global fashion industry in 2018. A case in point is WeChat, already taking China by storm by employing the Chinese tradition of red envelopes to grow its payments user base. In addition to

messaging, users can use the app to shop or call a cab, paying for those activities using the app’s platform. The app employs both social interaction and gamification that get users to send payments to each other – for fun. Western players like Facebook and PayPal have emulated some of WeChat’s many features but have not yet adopted all of them. Asian companies’ lead on innovation and digitisation can also be witnessed in the fashion industry, from Chief Purchasing Officers in McKinsey’s 2017 Apparel CPO Survey ranking China highest in sourcing digitisation, to Japanese brands such as Issey Miyake, long known for experimenting with technology to drive materials innovation.

In 2018, more Asian brands will leap onto the global fashion scene. Asian fashion players are already

The State of Fashion 2018

beginning to increase their presence and influence globally. This year, Gentle Monster from Korea attracted investment from LVMH-backed private equity firm L Catterton Asia,15 and Anita Dongre, the Indian brand that is backed by General Atlantic, opened a store in New York.16 More designers from Korea, India, China and Japan are displaying their wares at fashion weeks in Europe and the US.

Another way Asian players are expected to assert their power is by reversing the old global expansion pattern of Western companies moving eastward, to Asian companies moving outbound. Some companies will follow the lead of Urban Revivo, a Chinese fast-fashion player making inroads in Europe. Outbound Asian investment is also expected to take the form of increasing ownership stakes in international fashion companies. Recent examples include JD.com’s investment in Farfetch, and the acquisition of both Italian Cerruti and Gieves & Hawkes by Hong Kong-based Trinity, which later embarked on an ambitious expansion program in the UK and China. Top positions at the acquired companies will more frequently be filled by Asian leaders.

Asian fashion companies’ international ascendancy will go beyond sales and customer engagement, and move into infrastructure and other assets. Many Asian companies are already making large investments in Africa to develop new apparel sourcing hubs to take advantage of lower labour costs and proximity to both raw materials and consumer markets in the West. For example, the recent interest in Ethiopia as a sourcing destination is partly driven by Asian companies, with more than half out of the 124 foreign investors that expressed an interest in Ethiopia’s textile and clothing sector during the first quarter of 2017 being Chinese; and many Chinese, South Korean and Indian companies are already making investments in the country.17 Yuemei Group is one example of a company that has moved significant production to Africa. Such strategic investment to secure access is only likely to grow as Asian companies increasingly look outward and take a more central position on the global fashion stage, with some surpassing their Western peers in terms of innovation, investments and expansion.

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vk.com/id446425943CEO TALK

RICHARD LIU

FOUNDER AND CHIEF EXECUTIVE OFFICER OF JD.COM

The JD.com founder and CEO talks to BoF about the rapidly changing tastes and preferences of Chinese fashion and luxury consumers.

by Imran Amed

BoF: What is the biggest challenge facing the fashion industry in 2018?

Richard Liu: In the past, one brand could cover a large number of consumers, like a Zara or a Uniqlo could cover a lot of people easily. Now, people are looking more and more for niche brands, and I think it is a challenge for them. One brand cannot cover most people. You need a lot of brands to cover different groups.

BoF: Does this reflect that the tastes of the Chinese consumer are evolving?

RL: No one wants to take a bag, and put it on a table when a lot of ladies have the same bag with the same style. They want to find something special. Something you cannot find in your circle.

And [in the] lower-tier cities, in the past, some people with less income didn’t care about fashion, they just wanted to buy something they need. But if you look at China, there are more and more young people, and their income is relatively very small, but they want to spend time to find fashion, maybe not as expensive as luxury brands, but still very fashionable. Maybe not big brands, [but rather] small brands, or niche brands.

BoF: How does an e-commerce platform like JD.com factor into reaching consumers with their own tastes and preferences?

RL: The most important thing for the brand: they need brand building. So media, including social media, obviously is a very important channel, but if you ask any brand why they spend so many

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resources — time, events, fashion shows and marketing dollars — on the brand, it’s because they need sales. Commerce platforms for them are the best way to convert their customers to buying. And at the same time, for JD, we are not just a sales platform; we are a brand-building platform. We spend more and more resources to help build the brand — to strengthen the brand is as important as the sales side.

BoF: How do you see that working alongside the brand’s own e-commerce or stores?

RL: We don’t want to only be a sales platform for brands. We want to create a system that can cover multiple channels, including the [brand’s] official website. This is true for JD as well as other platforms and their distributor channels and offline chain stores. We are upgrading our whole platform and CRM system [so brands] can use it to do marketing for different channels. It will all be a single tool, so we call it “Three Ones” — one inventory, one brand, one price.

BoF: One inventory, one brand and one price.

RL: Yes. So online and offline prices are the same, inventory is the same, the brand is the same. In the past different brands online and offline were not the same. And in the past distribution channels — their official website, their offline chain stores and e-commerce platforms — all had different inventory. Even in-store, the same brand might have a different

The State of Fashion 2018

selection in different stores. We want to use the whole system to strengthen their supply chain.

I’ll give you an example: in the past they had to deliver from Beijing or Shanghai to Urumqi, 1,000 km away, but today, we can ship from the offline chain stores in Urumqi, so it’s travelling within the same city. The customer experience is better than before; I also think the brands can save some money.

BoF: I’m keen to understand more about the “White Glove Service” that you launched recently and why you think that’s an important part of the service offering for JD.com as it also goes after the luxury space.

RL: Over the past 10 years we spent a lot of time on consumer brands including FMCG; we set up a very strong, complete supplychain service for the brands. But [in] the luxury market, everything is different. So [I thought] we should set up [a] special service for luxury, because luxury is not the same as consumer brands. The service should be different to make sure luxury is special and has a unique experience. It’s very important for brand building.

BoF: How is it different, exactly?

RL: First, from the warehouse, we use a very small, special space, only for luxury goods. In this space, we use a lot of technology to protect against even a little bit of dirt. In a huge warehouse you cannot protect against every tiny piece of dirt, but we will use a very small space for luxury products. Second, we use a five-star-rated delivery man, based on customer feedback.

BoF: So you only work with the people that have 5-star ratings?

RL: Yes. We pick them and train them. Today in China most delivery men will ride three-wheeled electric bicycles, which is cheap, fast and convenient. But we ask our white-glove deliverymen to wear a luxury brand suit and drive a luxury car to make sure that we can protect the packages and the experience — they even wear white gloves. Imagine getting this kind of delivery service to your office or home, it’s a very different experience. We are even thinking about bringing multiple sizes and colours and letting the consumers choose, just like in a physical store.

BoF: Another big thing that JD was involved with this year was the investment in Farfetch. How does Farfetch fit into your larger fashion strategy?

RL: Farfetch is obviously the most successful and largest platform today for boutiques. On Farfetch you can find many SKUs, even [ones] you cannot find in the official stores. This is just the beginning of people liking niche, special, limited versions, so I’m sure in the future Farfetch will be more popular and more Chinese consumers will love them. We [wanted] to invest in them and introduce them to [our] consumers. Farfetch has a huge space to grow, I know they are talking with a lot of brands and more and more brands will collaborate with them directly.

BoF: Finally, what about your plans for JD outside of China?

RL: In the past several years we have spent a lot of resources bringing foreign brands to China, and to the Chinese consumer, because Chinese consumers increasingly love international brands. So that’s our first step. Second step: we also have global sales channels – in the future we will sell more and more China local brands to outside of China.

We will use two different ways to cover the entire globe. The first is our South [East] Asian channel. We will set up [a] subsidiary there and copy the Chinese business model. Build a local team, buyer team, logistics system and last mile delivery team, everything the same as in China. In Indonesia we have been operating for almost two years, and we will go to Thailand very soon.

But for Europe and [the] US we will use a cross-border business model. We have been thinking about this for many years. If you just copy another model or local players do exactly the same thing as them, you cannot find an advantage. So we will cooperate with Chinese local brands and bring them to the US and Europe. They need us, and we also need them, because the brand quality is very good and price is not as high. We will choose them, pick them up and bring [them] to the US and Europe. I think people will love these kinds of Chinese brands.

This interview has been edited and condensed.

“More and more people are looking for niche brands. No one wants to take a bag, and put it on a table when a lot of ladies have the same bag with the same style. They want to find something special. Something you cannot find in your circle.”

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vkCONSUMER.com/id446425943 SHIFTS

04. Getting personal

Personalisation and curation will become more important to the customer. As consumer values coalesce around authenticity and individuality, brands will value data even more to tailor recommendations, engage influencers and personalise experiences. The fashion companies that flourish will re-focus on their strengths.

We expect personalisation to be one of the major themes in the fashion industry next year. Fashion companies will deliver personalisation in many forms – from more-customised products, to curated recommendations, to communications and storytelling that connects to individuals. Indeed, respondents to the BoF-McKinsey Global Fashion survey identified personalisation as the number one trend in 2018. According to a Linkdex survey, more than 70 percent of US consumers expect some sort of personalisation from online businesses.18 Salesforce.com reports that consumers claim they are happy to hand over data to get a more tailored experience.19 Executives seem to be listening.

One reason for this development is consumers’ growing desire to use their fashion choices to express their own style, self-image, and values. The exploding use of social media plays an important role here. Many consumers

– in particular younger generations like millennials and Gen-Zers – share close to everything on social media. In pursuit of “likes” and building their own personal brands they seek one-of-a- kind items. However, other consumers are tiring of the facades people often project on social media, and want to express more honesty and realism in their streams and style choices. In either case, consumers prefer brands that align with their values, and so they seek authenticity from the fashion companies they engage with. “Customers today want businesses with purpose,” believes Tory Burch. “Obviously the product has to be A-plus but it's also really what you stand for and what you believe in.” For this reason, fashion companies are likely to use more authentic story-

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telling and realism in their communications with customers.

Consumers are also becoming more picky. This boosts demand for more unconventional and signature items, and for products with higher quality, better prices, exclusivity and authentic and engaging stories. Consumers know what they want, and are not hesitant to shop around for it – choosing products ideally suited to their needs from a variety of brands and companies. To connect with these empowered consumers, fashion companies should think about how to offer products and experiences that are perceived as unique. “More and more people are looking for niche brands or niche SKUs,” says Richard Liu of JD.com. “No one wants to [put a bag on the table] when a lot of ladies have the same bag with the same style. They want to find something special. Something you cannot find in your circle or in your neighbourhood or in your company.”

Some companies’ response has been to broaden the product portfolio and become essentially an umbrella lifestyle brand. In many cases, though, it may be beneficial for companies to refocus on their strengths and value proposition – concentrating on the areas where they can truly distinguish themselves, whether high product quality and signature items, refined price strategies, or more carefully selected product ranges. In other words, rather than taking a scattershot approach, to think carefully about what consumers actually want.

In search of convenient solutions, consumers will look to new sources to help them manage their product selection – and to help process the growing amounts of impressions they face

each day. Increasingly, consumers are trusting others to curate the information for them. Many consumers perceive the lifestyle of the influencers they follow to be more authentic than traditional company branding efforts, as illustrated by the fact that 9 out of 10 consumers trust an influencer more than traditional advertisements or even celebrity endorsements.20 This has led to more influencer endorsements, in addition to product reviews and referrals from peers becoming an important source for curation. In our view, fashion companies will begin to think more about how best to leverage influencer marketing, peer reviews and social media engagement for results that are most relevant to the modern customer. Yet, while influencers are a powerful channel, working with them is not always straightforward. The wrong ambassador can undermine a brand’s authenticity.

The year 2018 will also witness more fashion brands that successfully use data to provide personalised curation. One example is Stitch Fix, which serves as a personal stylist, using an algorithm to deliver personalised packages of pre-assorted clothing and accessories to consumers monthly. With this business model, Stitch Fix in 2016 realised revenues estimated at $730 million. Another example is Affinity, which has a vision of creating a “Pandora for fashion,” recommending styles and looks based on algorithms. But being personal is not enough – personalisation must be experienced as relevant and timely, ideally offering surprising and complementary items, and done in a way that does not feel intrusive.21

Consumers will appreciate products that are tailored to their individual needs. Mon Purse, for example, offers customised handbags, partly enabled by new technology such as 3D printing, 3D knitting and laser censors, as shown by Adidas’s “Knit for you” pop-up store that produces bespoke products in just a few hours. Mytheresa.com offers customers the opportunity to personalise Gucci trainers online. Customisation will range from smaller adaptions (like embroidery in store) to pre-designed items such as colour combinations that bring a personal touch, to products designed almost completely by the customer.

The State of Fashion 2018

The concept of personalisation – from webpages and promotions to customised products

– has been around for a while. Yet even though demand for individualised and curated fashion is evident, most fashion companies are not yet providing it at scale. Many seem to struggle with turning customer data into intelligent and actionable insights, and few have managed to implement one-to-one tailoring or deploy the technology effectively. But many fashion brands have recently made big advancements in digital, data analytics, and mass-customisation in production, the prerequisites for delivering personalisation at scale.

We expect 2018 to be the year when leading fashion companies will begin delivering on personalisation in earnest, and when the ability to create individualised products will become a source of differentiation. The leaders of the pack will leverage data and technology like machine learning to provide cutting-edge individualised curation and tailoring for consumers that takes into account purchase journeys and customer feedback; to increase relevance of their storytelling and contextual channels; and to refocus on creating products that are distinctive.

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